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Commitment Savings Accounts Help Farmers Invest in Their Crops

General Information

Project description

Challenge
Many people in developing nations have limited access to formal savings mechanisms, impeding their ability to save money and invest in agricultural inputs like tools and fertilizer that might help improve their crops. Among the many structural reasons for low savings rates (inaccessible banks, high transaction costs, distrust of financial institutions, lack of financial literacy), psychological barriers such as impatience or lack of self-control may also play a role. Additionally, people in rural areas might avoid accumulating assets because of an obligation to share any savings with their social networks.

Design
Tobacco farmers in Malawi were offered two types of savings accounts. The first “ordinary savings” group was given help opening an account with a 2.5 percent interest rate and setting up direct deposit for proceeds from their crop harvest. The other “commitment” group was offered the same savings account, with an additional option to open a special account that allowed them to “freeze” a specified amount of money until a certain date, usually right before the next planting season to preserve funds for farm input purchases.

Impact
A randomized control trial with 3,150 farmers found that offering the commitment account option was associated with a 9.8% increase in land under cultivation, a 26.2% increase in agricultural input use, and a 22% increase in crop output in the subsequent harvest over the control group mean. The “ordinary savings” account did not have statistically significant effects.

Among farmers who were offered both types of accounts, 89% of funds were put in ordinary savings accounts. The fact that most funds were not in a restricted account suggests that results from the commitment accounts were rooted in how they helped individuals protect funds from social network pressures (by providing a plausible explanation for why funds were unavailable for sharing), rather than in how they helped solve “self-control” problems.

Source: B-Hub

Detailed information

Final report: Is there a final report presenting the results and conclusions of this project?

Yes

Final report

Pre-analysis plan: Is there a pre-analysis plan associated with this registration?

No

Additional information

<h3>Does a third party implement the intervention or is this a collaboration with another team?</h3><div class="csp"><p>Innovation for Poverty Action</p> </div>

Who is behind the project?

Institution: World Bank
Team:

Project status:

Completed

Methods

Methodology: Experiment, Field Experiment
Could you self-grade the strength of the evidence generated by this study?: 1
Start date: 04/01/2009

What is the project about?

Policy area(s): Agriculture, Finance
Topic(s):
Behavioural tool(s): Commitment Device

Date published:

25 June 2021

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